Gulf Resources Focuses on Environmentally Friendly Components    
By Amy Lee    

Gulf Resources is a leading provider of bromine, crude salt and a portfolio of various specialty chemicals throughout China and became a U.S. publicly traded company in December 2006. Its products are necessary components for China's flourishing oil and papermaking industries. The company has a bromine production capacity to an estimated 34 700 t/a.
   The company operates through its two wholly-owned subsidiaries located in Shouguang, Shandong province of China: Shouguang City Haoyuan Chemical Co., Ltd. (SCHC), which is one of few licensed bromine producers and is the largest in China and fourth largest in the world, and Shouguang Yuxin Chemical Industry Co., Ltd. (SYCI), which produces and distributes chemical products and agents used in oil and gas field exploration and distribution, oil field drilling, and in the papermaking industry. The company serves large customers such as Sinopec Corp. and PetroChina.
   Gulf Resources possess one of the few bromine exploration licenses in China and maintain a sizeable asset base with 50-year mineral rights and land leases covering property with access to approximately 1.96 million tons of bromine in non-reserve mineralized materials.
   The company's revenue was US$87.5 million in 2008, a year-over-year increase of 61.8%. Gross margin was 40.2%, compared to 41.2% in 2007. Net income was US$22.4 million, a year-over-year increase of 83.1%. Recently it announced its financial results for the first quarter of 2009 with a revenue was US$23.6 million, a year-over-year increase of 7.3% and gross margin 42.7%.

* Bromine market opportunity in China     

China is now the world's third largest bromine producer after the United States and Israel. The production of bromine is currently over 150 000 t/a in China, but demand for bromine continues to outpace supply.
   China's domestic market is large and growing and the country currently produces roughly 80% of all the bromine consumed domestically, in which Gulf Resources contributes a number of 10%.

  * Recent developments    

In February 2009, Gulf Resources completed the acquisition of manufacturing assets involved in bromine and crude salt production owned by three individual residents of China. The company expects the acquired assets to add production capacity of 3 000 t/a bromine and 200 000 t/a crude salt by SCHC's operation, bringing SCHC's capacity to 34 000 t/a bromine and 300 000 t/a crude salt. (CCR2009 No.3)
    In April 2009, Gulf Resources started formal production at Factory 7 using bromine production assets acquired in February 2009. The company expects the assets to reach a utilization rate of 70% by the end of 2009, taking year-end equipment maintenance into consideration.
   Immediately following the acquisition of assets, the company started extracting crude salt from the salt pans included in the acquisition.

  * Business outlook    

"Even though Gulf Resources have experienced a slight decline in bromine orders from our largest customers for 2009, Gulf Resources continue seeing strong demand from downstream industries utilizing bromine. As prices for chemical products utilizing bromine rebounded in March 2009, the overall bromine orders are increasing, resulting in slightly higher bromine prices," said Mr. Xiaobin Liu, CEO of Gulf Resources. Thus far, the company has received bromine orders valued at approximately US$47.8 million, and crude salt orders valued at approximately US$5.9 million to be delivered throughout fiscal 2009.
   The company plans to continue increasing control over bromine production assets in Shandong province through additional acquisitions, while simultaneously establishing more salt pans in conjunction with its existing bromine production properties to increase the extraction of crude salt. "Gulf Resources expect to see an increase in overall gross margin over the upcoming quarters as Gulf Resources continue developing our higher margin environmentally friendly oil and gas exploration chemical product business and increasing production of crude salt. It also expects that the government stimulus package to render support for infrastructure and construction, which in turn should boost demand for brominated flame retardants," he concluded.
   He says that the company is developing its environmentally friendly additive business by increasing capacity utilization of its second chemical production line which is currently working at 50% of total capacity. The company also plans to upgrade its first chemical production line to comply with the development and production of environmentally friendly chemical additives for agricultural applications. The upgrade of the first chemical production line would also entitle the company to benefit from the VAT rebates introduced by the Chinese government to promote the development of the domestic chemical industry.
    For fiscal year 2009, Gulf Resources expects to achieve revenue of approximately US$98 million to US$103 million, net income of approximately US$27 million to US$29 million.